Section 38(2)

Section 38(2) — the law in short

What the courts have decided on section 38(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Danesh A. Irani v CIT — proportionate deduction under s.38 where only part of the premises is occupied for the business High CourtHelps departmentValidity unconfirmed
  I am a tenant of part of a building and I paid to replace the whole roof. The Assessing Officer has allowed me only the proportion of the area I occupy. Is that right?
  Yes, on this decision. The Bombay High Court held that where the expenditure relates to a building that is not exclusively used for the business, s.38 vests a discretion in the Assessing Officer to grant a proportionate deduction, and it upheld a deduction computed on the ratio of the area occupied — 3,700 square feet out of about 30,000.
• Punjab Bone Mills v CIT — s.38(2) proportionate disallowance where plant is shared with sister concerns High CourtHelps departmentValidity unconfirmed
  The Assessing Officer says my boiler was also used by my sister concerns and has cut my depreciation by two-thirds. Can he do that?
  Yes, if the asset was genuinely not used exclusively for your business. Section 38(2) requires depreciation under s.32 to be restricted to a fair proportionate part, which the Assessing Officer determines having regard to the user of the building, machinery, plant or furniture for the purposes of the business, and the Punjab and Haryana High Court upheld exactly such a restriction where the boiler was used by two sister concerns and the expenses were shared.
• Sayaji Iron and Engg. Co. v CIT — a company has no personal use, so no fraction of car expenses or depreciation can be disallowed High CourtHelps taxpayerValidity unconfirmed
  The Assessing Officer has disallowed one-sixth of my company's car expenses and depreciation because the directors used the cars personally. Can he?
  Not where the company is the assessee. The Gujarat High Court held that where the directors were entitled under their terms of appointment to use the company's vehicles for personal purposes, the expenditure is remuneration within the Explanation to s.198 of the Companies Act 1956 and is the company's business expenditure, so no part of the vehicle expenses or depreciation could be disallowed for personal use.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.